Suburbs face their own pension mess

Suburbs from wealthy to working-class have combined to dig a $5 billion hole for taxpayers on the hook to pay for the pensions of police officers and firefighters.

A Tribune analysis of the Depression-era pension system found that suburban leaders' failures and missteps have collectively helped create another staggering layer of crisis beyond the better-known problems that have the state and city of Chicago in a stranglehold.

Some communities are now slashing budgets or even laying off workers as they try to reconcile the promises they made to cops and firefighters with the amount of money actually set aside for them.

Of the 300-plus pension funds across the region, only about 20 are rated by the state as fully funded.

"I feel at the moment as if I'm lying to every new hire to the police and fire departments by promising them a pension I'm not sure I can deliver," said Evanston Mayor Elizabeth Tisdahl.

Some towns did not put nearly enough into their pension funds. Some padded pensions of workers by boosting salaries just before they retired. Some boards overseeing the funds violated basic management rules.

And state regulators have little power to police excesses, allowing problems to fester from suburb to suburb.

The Tribune documented problems that alone might not seem large, but add up to a big burden for taxpayers:

In Niles, officials failed for years to pay their pension funds what actuaries said was needed, and crawling out of the hole has led to a fivefold jump in payments as police and fire jobs go unfilled.

In Barrington, officials jacked up pensions for top brass to entice retirements and agreed to a pension-inflating perk in the union contract. Then town leaders joined a PR campaign to push state lawmakers to ease the "unsustainable burden" of such pensions on towns.

And in St. Charles, the board overseeing pension cash has used some to pay the board president's wife for clerical work and to send board members, all expenses paid, to out-of-state conferenceswhile thepension fund's health worsened.

The flaws and excesses were long masked by a strong economy, when big investment returns pushed average funding levels to nearly 80 percent a decade ago — which many experts consider to be healthy. The latest figures from 2009 show suburban public-safety pension funds, on average, have just 52 percentof the assets needed to be fully funded.

Though the true cost will vary from place to place, the unpaid tab averages nearly $2,700 for every suburban household. A strong economy could boost investment returns and lessen the liability, but experts say the financial sins of the past are too great for pension systems to merely invest their way out of them.

As lawmakers consider reforms, town leaders and unions point fingers. Unions complain towns haven't saved enough and lawmakers failed to force them. Suburban leaders complain lawmakers required them to offer lucrative benefits without the cash to pay for them. The one thing they agree on: The recession made the problems far worse.

The looming crisis frustrates residents such as Jim Young, who joined an Evanston panel studying that city's pension woes. He said government needs to pay for its promises, or stop promising so much.

"Don't kick the can down the road, because that's a debt you're giving my kids and my grandkids, and they're going to have to run the marathon of life with a 5-pound weight on their back," Young said. "How in the hell are they going to compete when they have all this debt?"

Passing the buck

Given their dangerous jobs, police and firefighters have long been promised more generous pensions than rank-and-file government workers. Towns are supposed to collect enough property taxes each year so that, if combined with employee contributions and prudently invested, it would over time cover the benefits already earned by current and future retirees.

But the law doesn't say how much towns must put in, often leading to fights over the math.

The Department of Insurance provides figures to each town to levy in taxes and transfer to the pension funds. But the law lets towns hire their own actuaries to come up with different figures. Pension funds can get their own actuaries, too.

There are no set standards — allowing tweaks in the formula that can sharply lower what a town has to pay, pushing more debt to the future.

And many times, the Tribune found, suburbs' payments failed to meet even the lowest amount required by law.

The state doesn't compile figures of how many towns have done that, with such findings usually buried in individual fund audits. The Tribune reviewed every audit the state would provide — 153 of them in metro Chicago — and found regulators cited a third of their taxing districts for not providing enough cash to their pension funds.

Pension boards complain and even sue the towns, as Summit's police board did last month, alleging it is owed at least $1.1 million.

Meanwhile, towns plead poverty or cut jobs to boost pension funding.

Lake Zurich administrators are trying to catch up after previous town leaders shorted the police pension fund for years. They are planning to pay $1.2 million to the fund next year, six times what they paid just two years ago.

To make budget in recent years, officials have cut 24 positions.

"I wish we could pass the buck to the next guy," Village Administrator Bob Vitas said. "But the reality is you can't."

After shorting its funds, Niles is paying more, in part, by not filling about five open slots for police and firefighters this year. Bridgeview is leaving spots unfilled, too.

Towns that shorted their funds for years get little sympathy from pension fund officials. They say they long warned that the practice would eventually lead to skyrocketing bills.

"When you have politicians with this discretionary authority, where they don't have to pay, that's a real problem," said Jim McNamee, a retired Barrington officer who runs an advocacy group for police and fire pension funds. "They gave themselves a huge tax break during the best economic times we had."

Even sweeter pensions

The skyrocketing bills haven't stopped towns from inflating pensions. A Tribune review of audits and area departments found the practice has been happening for years — even among towns that complain about high pension costs.

Because the size of workers pensions is based in part on their final salary, raises just before retirement inflate the payouts for years to come.

The spiking is written into union contracts from Wood Dale to Lansing, the Tribune found, spelled out as "longevity" pay boosts that coincidentally occur during the anniversaries when employees are likely to retire.

It was just that kind of pay hike that boosted the pension of Countryside police Chief Timothy Swanson 20 percent — to $84,555 — when he retired last year. He declined to comment.

Some pay bumps are offered to induce retirement — it's the boost in pension that is the real enticement.

That's how a retiring Franklin Park deputy chief ended up with a salary higher than her boss.

Some of the end-of-career pay raises are part of regular retirement deals to top cops.

In Justice, five police brass retired with pay bumps this decade, even as the town failed to pay the money it was supposed to into the pension fund. That included Carmine Gioiosa, a chief whose pension was bumped about $23,000 a year, to $85,995.

Gioiosa said the deal was fair — retirees gave up health insurance coverage for as long as 15 years in exchange for the pension boost. Former Mayor Melvin VanAllen agreed, saying shifting the costs to the pension fund "is what the law allows."

But current Justice Mayor Kris Wasowicz called the deals "unconscionable." He said his town is simply too broke, having cut 12 positions in recent years, to pay for pensions he describes as too lucrative.

In Barrington, one chief got a big payday and a new job — in the same town. As part of a deal to clear police payroll and avoid layoffs,Barrington Police Chief Jeff Lawler got an extra 6 percent raise to induce his retirement. The extra pay bump boosted his pension by nearly $5,500 to about $97,000 at the age of 56.

Then the town rehired him as its $128,000-a-year village manager.

One of his top priorities as village manager: get a handle on rising pension costs.

Lawler says his early-retirement bump was justified — a similar deal was offered to other brass and in the union contract. But he wonders if the system can survive without changes.

"The concern is that, over time, if these costs continue to rise, is it sustainable?" Lawler said. "And does that do anybody any good?"

A unique setup

State regulators frequently receive complaints about spiking and often issue "advisory opinions" saying it shouldn't be done. But they have little power to stop it.

What they can do is audit the funds to point out problems.

There are more than 600 separate funds across Illinois, and each has its own five-member board representing municipalities, workers and retirees. Each board hires its own lawyers and investment advisers.

Investment returns varied widely. In limited data from the state, the area's best fund last year earned 24 percent, the worst lost 12 percent.

It's unique for pension systems. Most other states — and most Illinois government workers — have pooled, statewide systems run by full-time staffs. Police and firefighter unions say local control is better, but lawmakers have limited how risky their investments can be and insist the Department of Insurance regularly audit the funds.

Those audits commonly cite boards for breaking basic management and accounting rules, often paperwork oriented, but sometimes more serious.

Pensions boards have been cited for making improper and risky investments, for repeatedly miscalculating pension checks, for spending too much on trips or personal expenses, and for failing to meet — for years.

In Des Plaines, the police board used pension money to pay for food as well as cell phone bills that averaged $450 a month. Board president Nicholas Chiaro said the expenses were fair — volunteer board members need to eat during meetings and stay in touch between them — and the fund's investments have done well.

The Department of Insurance itself struggles to comply with state law requiring that it audit each fund every three years. The Tribune asked for the most recent audits of every fund. Of audits provided, half were older than three years.

That included St. Charles, where the police fund has 51 percent of needed cash to cover earned benefits.

In 2003, its most recent audit, the board was cited for renting an office where it met just four times a year. Board president Larry Laughlin said the board no longer rents it because the city now allows it to meet at the police station.

The board, upset at the city's handling of paperwork, hired Laughlin's wife to do it after seeking bids from her and several accounting firms, Laughlin said. He said he didn't vote on the deal, and he would not disclose her pay.

Laughlin also confirmed the board regularly pays travel expenses for board members to attend pension conferences. That included two members going to New York City to learn about the stock market.

State auditors have questioned similar expenditures in audits of other towns. But with seven years since the last audit, it's unclear what they think of St. Charles' fund.

The Department of Insurance won't answer questions about why it hasn't been back to St. Charles, or comment publicly on any other aspect of the Tribune's findings.

A former state pension regulator, Tom Jones, said it's impossible for the state to keep close tabs on the funds. Even when audits find problems, there's little the state can do.

Jones, who ran the Department of Insurance's pension division from 1990 to 2004, said public pensions are mostly untouchable, barring any criminal behavior. That's different from insurance companies.

"I can go shut down an insurance company," he said. "But I can't shut down the pension fund if they don't have enough money."

Towns and unions, however, have only ratcheted up the public-relations battle over underfunded pensions. Unions want more pressure on towns to make payments. Towns want debt payments eased, current workers to shoulder more of the cost, and new hires to get fewer benefits.

"I think the state has to deal with the issue, or there will be bankrupt funds," said Tisdahl, the Evanston mayor.